Once a Private Limited Company is registered in India, it must follow certain compliance rules under the Companies Act, 2013. One of the key mandatory requirements is to conduct a statutory audit, no matter the company’s turnover or size.
A company audit involves reviewing the company’s books of account to ensure everything is accurate and in order. For this, the company must appoint a qualified auditor.
The main purpose of the audit is to allow the auditor to give an opinion on whether the company’s financial statements give a true and fair view of its financial position.
The auditor will go through various records like invoices, bills, ledgers, and vouchers to verify their accuracy and ensure proper maintenance.
This audit is a yearly compliance that all private limited companies must follow as per the Act and applicable rules.
Types of Audit for a Private Limited Company
Private limited companies may be required to conduct different types of audits based on compliance needs and business operations. Here are the key types of audits:
1. Statutory Audit
A Statutory Audit is mandatory for every private limited company, regardless of its profit, turnover, or whether it is incurring losses. As per the Companies Act, 2013, and the Companies (Accounts) Rules, 2014, companies must get their annual financial statements audited each financial year.
The objective of this audit is to ensure that the company’s financial records, including books of accounts, bank balances, and statements, present a true and fair view of its financial position.
2. Internal Audit
An Internal Audit is conducted to evaluate the company’s internal controls, risk management, and operational efficiency. Though not required for all companies, it is mandatory for certain private companies as per the Companies Act and the Companies (Accounts) Rules, 2014.
Internal audit is required for private companies that:
Have a turnover of ₹200 crore or more in the previous financial year, or
Have outstanding loans or borrowings from banks or financial institutions exceeding ₹100 crore.
Internal audits help management make better financial and operational decisions by identifying inefficiencies and areas of improvement.
3. Cost Audit
A Cost Audit is required for companies engaged in specific types of manufacturing or service activities, as prescribed under the Companies (Cost Records and Audit) Rules, 2014.
Cost audit is applicable to private limited companies that:
Table 3(A) Category:
Have a total turnover of ₹50 crore or more, and
A product/service-specific turnover of ₹25 crore or more.
Table 3(B) Category:
Have a total turnover of ₹100 crore or more, and
A product/service-specific turnover of ₹35 crore or more.
Cost audits ensure proper maintenance of cost records and help assess the cost structure of products or services.
Appointment of an Auditor in a Private Limited Company
1. Statutory Auditor
Every private limited company is required to appoint its first statutory auditor within 30 days of incorporation. This auditor is responsible for conducting the audit of the company’s financial records.
The appointment must be confirmed by shareholders at the first Annual General Meeting (AGM).
Once appointed at the AGM, the auditor holds office for five years, subject to ratification.
Only an independent practising Chartered Accountant (CA), a CA firm, or an LLP where the majority of partners are CAs in practice in India can be appointed.
2. Internal Auditor
Internal audit is applicable to specific private companies as prescribed under law. The internal auditor:
Can be a company employee or an external professional.
Must be a Chartered Accountant, Cost Accountant, or any other qualified professional as decided by the Board.
Helps the company in assessing internal controls, efficiency, and risk management.
3. Cost Auditor
Private limited companies that meet certain thresholds under the Companies (Cost Records and Audit) Rules, 2014 must appoint a cost auditor:
Appointment must be done within 180 days from the beginning of the financial year.
The auditor must be a practising Cost Accountant, either as an individual or a firm/LLP.
A practising cost accountant is defined under the Cost and Works Accountants Act, 1959.
Due Dates for Audits in a Private Limited Company
Understanding the timelines for various types of audits is essential to ensure compliance and avoid penalties. Below are the important due dates for statutory, internal, and cost audits of a private limited company:
1. Statutory Audit
The statutory audit must be completed before the Annual General Meeting (AGM).
The audit report should be submitted to the Board of Directors before the AGM.
The financial statements, along with the audit report, must be filed using Form AOC-4 within 30 days of the AGM.
The annual return must be filed using Form MGT-7 within 60 days of the AGM.
The due date to hold the AGM is on or before 30th September every year.
2. Internal Audit
There is no specific due date for conducting an internal audit.
However, the internal auditor must submit the audit report to the board before the AGM.
The internal audit findings, if required, are to be included with Form AOC-4.
3. Cost Audit
The cost audit report (Form CRA-3) must be submitted to the Board of Directors on or before 30th September each year.
After review, the board must file the report with the Central Government using Form CRA-4 within 30 days of receiving the cost audit report.
ROC Forms Related to Audit Requirements for Private Limited Companies
A private limited company is required to file specific ROC (Registrar of Companies) forms to comply with audit regulations. Below is a list of key forms and their purposes:
Important Note:
Failure to file these forms or to submit the statutory and cost audit reports may lead to penalties and compliance issues.
While statutory audit is mandatory for every private limited company, internal and cost audits must be conducted when the company meets the conditions specified under the relevant audit rules.
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FAQs
1. Is audit mandatory for every private limited company?
Yes, statutory audit is mandatory for all private limited companies, irrespective of their turnover, profit, or loss.
2. Who can be appointed as the statutory auditor of a private limited company?
Only a Chartered Accountant (CA) in practice, a CA firm, or an LLP with a majority of practising CAs can be appointed as a statutory auditor.
3. When should a private company appoint its first statutory auditor?
The first statutory auditor must be appointed within 30 days of the company’s incorporation.
4. What is the due date to complete the statutory audit?
The statutory audit must be completed before the Annual General Meeting (AGM), typically on or before 30th September every year.
5. What is internal audit, and is it compulsory?
Internal audit is a review process of the company’s internal controls and processes. It is mandatory only for certain companies as specified under Section 138 of the Companies Act, 2013.
6. When is cost audit required for a private limited company?
Cost audit is applicable only if the company falls under the prescribed criteria as per the Companies (Cost Records and Audit) Rules, 2014.
7. Can a company employee perform an internal audit?
Yes, an internal audit can be conducted by an internal employee or an external professional such as a CA, cost accountant, or other expert approved by the Board.
8. What are the ROC forms related to audits that must be filed?
Important forms include ADT-1, AOC-4, MGT-7, CRA-2, CRA-3, and CRA-4 depending on the audit type.
9. What happens if a company fails to conduct or file audit reports?
Failure to comply can result in penalties, disqualification of directors, and additional ROC fees.
10. Do dormant companies also need to conduct statutory audits?
Yes, even dormant companies must conduct statutory audits unless they are specifically exempted under the Companies Act.